Maine voters went to the polls on November 4 for a Referendum Election that presented six questions addressing everything from horse racing and casinos to bond issues for higher education and highways.

Top among the ballot measures was Question 1--actually three competing questions--addressing education funding. None of the three questions attracted support from a majority of voters, meaning the top vote-getter will go before voters again in 2004.

Question 1A, a citizen’s initiative placed on the ballot by the Maine Municipal Association (MMA), attracted 38 percent of the vote--more than the 35 percent received by 1B, a competing plan submitted by the governor and legislature, and the 27 percent received by 1C, a “none of the above” option.

The MMA initiative would require the state to “immediately” fund 55 percent of the government’s total spending on K-12 education, as well as 100 percent of all prior year “unreimbursed special education expenditures.”

Economic Impact Tested

Two weeks before the Maine vote, the Maine Public Policy Institute (MPPI), a nonpartisan research organization headquartered in Bangor, released an analysis of the likely impact of Question 1A and 1B on the Pine Tree State’s economy.

The report, Truth and Consequences: The Impact of Tax Reform on Jobs and Investments, was written for MPPI by economists with the Boston-based Beacon Hill Institute (BHI) at Suffolk University, including David G. Tuerck, Ph.D., president of Beacon Hill. The report was issued jointly by MPPI and Beacon Hill. Its projections were developed by employing the Maine State Tax Analysis Modeling Program (STAMP), a comprehensive model of the Maine economy designed to capture the principal effects of tax changes on that economy.

“The Maine Municipal Association’s (MMA) Question 1A and the Governor’s Question 1B would, at best, shift taxes--lowering the property tax while raising an equal amount with either the sales or income taxes. But at what cost?” asked Scott K. Fish, director of special projects for MPPI. “Now, we can answer that question.”

To meet the 55 percent education funding requirement mandated by Questions 1A and 1B, the Truth and Consequences report notes, would require an estimated $250 million in new state revenue in the first year of the mandate alone. The report assumes the $250 million would come from some combination of three actions:

Cutting state spending

Broadening the sales tax base, or

Increasing the state income tax.

Sales Tax Funding

“Nothing in recent Maine history shows a $250 million state spending cut as a real option,” said Fish. “However, history does show the MMA pushing an expansion of the state sales tax as a way to raise an extra $250 million. So we tested the impact of a $250 million broadening of the sales tax, coupled with a 15 percent reduction in local property tax rates across Maine.”

According to the report, removing just 20 percent of Maine’s current sales tax exemptions would raise an additional $250 million in state revenues. But doing so would also mean:

the loss of more than 2,500 jobs

a $75 million drop in real disposable income, and

a $27 drop in per-capita real disposable income.

Income Tax Funding

Fish said, “We thought this news might cause 1A and 1B proponents to think about raising the state income tax instead of the sales tax. So we tested the impact of that option as well.”

To raise $250 million in new revenues would require raising the state’s income tax rates by 20 percent. The net effect of that increase, with a 15 percent reduction in local property tax rates, is $251 million in new state revenue ... and:

the loss of more than 9,800 jobs

a population loss of 5,600 Maine families, as those who have lost their jobs seek better options elsewhere, and

a $92 million drop in real disposable income.

As Maine prepares for the 2004 vote on Question 1A, Fish encouraged voters to pay careful attention to the Truth and Consequences report and the overall impact the measure would have on their well-being. The measure’s proponents “are pushing for tax changes and not telling Mainers how many jobs will be lost or what will happen to their disposable income if it passes,” Fish said.

“This new economic modeling program will not let them hide that side of the ledger any longer,” he continued. “Whether it is a personal income tax change, a sales tax change, a gas tax change, or any other state tax change, Maine-STAMP will show policymakers and taxpayers the full impact of such changes on Maine families and job creators.”

Diane Carol Bast is vice president of The Heartland Institute and editor of Budget & Tax News. Her email address isdbast@heartland.org.